I've already griped about this earlier in the week, but the way finance regulators have been going about their business of investigating the events leading up to the Crash of '08 does not make me think we're learning anything useful. The SEC and others seem to be looking at cases where people made money shorting the housing market and/or over-leveraged financial firms, rather than the true source of the problem; namely that people were losing money - billions of it - on bad bets involving the housing market. Now Deutche Bank is being investigated for brokering a bet between housing bears and housing bulls over the direction of the markets and then failing to disclose who was on each side of the transaction. Yes, it's the Goldman scenario again. Dual Role in Housing Deal Puts spotlight On Deutche

Federal probes of the collapsed mortgage-bond boom are shedding light on how Wall Street firms sometimes created securities and sold them to one set of investors, while advising others to bet against them.

One firm that was a major player in mortgage securities, Deutsche Bank AG, illustrates a pattern investigators are looking at. While creating and selling mortgage securities to some of its clients, the big German bank was not only advising other clients to bet the other way, but also sometimes doing so itself

A Deutsche trader helped create an index that made it easy to bet against housing, and the bank itself then used the index to do just that

After the collapse of mortgage securities led to a costly bailout of the firm that insured many such securities—American International Group Inc.—some of the federal cash that was sunk into AIG flowed to Deutsche, to cover bearish bets by its hedge-fund clients.

Deutsche's actions are a vivid example of potential conflicts on Wall Street—the way big financial firms play both sides of the fence with investors. The issue became more extreme during the mortgage bubble and subsequent bust because of the size of the bets on Wall Street and subsequent losses on Main Street.

As in the Goldman "fraud," the party taking the short position was John Paulson, who was a lonely voice on Wall Street taking bearish positions on housing, usually through purchases of CDO's and the like. He was looking at the same numbers as everyone else, saw doom, and acted accordingly. Everyone's bitching at Goldman and Deutche now, but at the time everyone thought Paulson was nuts. Even after he decided to short housing, he spent a considerable amount of time trying to figure out how to do so, eventually working with a number of dealers to buy insurance that would pay out in the event of a housing crash. (the "Greatest Trade Ever" was actually a series of transactions). While regulators are complaining that "no one knew" Paulson was on the other side, the fact is that Paulson didn't know either until quite late in the game, finally learning that the banks selling the mortgages and mortgage related products were often the counter-parties. Maybe someone should investigate that instead of the schmoes who brokered the deals.

It's probably gauche to point out that, overall, Deutche lost money just like everyone else, so I won't.

The fact is that these sort of non-disclosure cases are the ones that regulators are going great guns to pursue (along with Ponzi schemes and outright frauds like Madoff, Sanford, and Dreyer). The guys who led their firms into a ditch have largely been left alone, although Lehman's Dick Fuld seems to have attained a sort of infamy. But, it was the masters of the universe who led the financial world to ruin by going long on housing.

A perfect example is Merrill Lynch's Stan O'Neil who, after winning praise for his "historic" ascendency to the top of the Merrill food chain (where he promptly began firing everyone who didn't kiss his a**), decreed that Merrill would go heavily into the mortgage market. And then stayed...and stayed...until O'Neil was fired for over-extending the firm. Receiving the inevitable nine-figure golden parachute, not to mention, years of record setting bonuses, while heading out the door, of course. So, O'Neil screwed up his firm going long on housing. A familiar story and one that regulators missed at the time and continue to blow off in their quest for accountability.

But, O'Neil wasn't done. While reading Paul Ingrassia's Crash Courseabout the fall of the American auto industry, I learned that one of GM's many problems was overexposure to the subprime mortgage industry by GMAC, which eventually had to be bailed out. Apparently one of GM's board members had been insistent that mortgages and real estate in general were can't-miss investments. This board member held great sway due to his "expertise" in mortgage-related investments, so even though others on GM's board expressed doubt, GMAC went long on mortgages ... and went right off of a cliff into a tax payer bailout. The name of the board member? Stan O'Neil! Imagine that!

The fact is that we are relentlessly focusing on learning the wrong lessons from the Crash of '08, punishing the people who made money, while letting the losers skate away with their millions into a luxurious obscurity. This follows the claims among Bear Sternes and Lehman executives that all of their problems were caused by short sellers driving their stock price down (and making a profit). No, the short sellers' profits were a symptom of the failed firms' own disastrous miscalculations, not a cause. But, better to blame shadowy short sellers like John Paulson, rather than media stars like Stan O'Neil.